Dream on: As in a vast Ponzi scheme only current contributions from workers finance current contributions to pensioners

Traditionally Christmas is a time for ghost stories. But this year we don't need invented tales to make us shiver. There are quite enough genuine reasons in the news—enough, in fact, to obscure the really frightening developments which you cannot discern through the fog because they are a little farther off. So wrap your cloak about you and draw nearer to the fire. I want to make your flesh creep.

The largest financial hole facing the UK is not the deficit (£126 billion and sticky)—about which the Coalition is doing quite a lot, though it's often contradictory. Nor is it the national debt (£1,039 billion and rising)—about which the Coalition proposes to do nothing at all, except increase it. No, the grimmest spectre haunting us is the liability attached to the state pension system. Depending on whom you ask, this is equivalent to possibly £2,000 billion, a figure nowhere incorporated in the public accounts.

We are living longer and we are having fewer babies before we die. Also, we have stopped saving, either because means-tested welfare has made saving irrational, or because low real interest rates have undermined its value, or because we've all become short-sighted. It's probably a mixture of the three.

The state pension is unfunded. No pot of money supports the promises made. Like a vast Ponzi scheme, current contributions from workers finance current payments to pensioners. Thus, as a matter of inescapable arithmetic, if the number of recipients goes up, they receive for longer, and more of them are dependent upon the state because they have no savings of their own, while the number of contributors falls in relative terms, then the burden on the contributors will escalate. And a heavier tax burden on future contributors will leave them with less disposable income, which reduces their ability to save, making more of them dependent upon the state when they retire, which will cause the problem to snowball even faster. Furthermore, this system of dole-pensions carries a high administration cost: to track people, to record their notional accrued entitlements, and then to make small, regular payments to them in their old age.

The system, then, is a recipe for escalating tax burdens which are simply unsustainable. And everyone knows it. The Ghost of Christmas Present is hardly a bundle of laughs, but the Ghost of Christmas Yet To Come offers nothing but Dickensian squalor. Perhaps the natives of Borrioboola-Gha will send us food parcels.

For God's sake! When will these financial pundits wake up to the fact that most people don't save "for their retirement" because they do not have sufficient disposable income. The cost of living, including taxes (stealth and other), utility bills, commuter transport, accommodation and other basic necessities eats away most of what we earn. If those with disposable income were to hang on to it rather than spending we would soon be hearing dire warnings about a lack of consumer confidence damaging the economy.

pjkkerr

December 16th, 20129:12 AM

Seems imlausible that shuffling digital vouchers will create food for people to eat, energy to heat their homes, and garments to clothe them in their retirement. If the rest of the population's productivity rises such that they can actually provide these things for everyone, then the dole pension model will, by assumption, still work. If not, then people will just have to retire much later and accept a lower standard of living.

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